Fedspeak: Lockhart on exit strategy
Atlanta Fed president Dennis Lockhart, speaking at the NABE policy conference today, provided some useful thinking about Fed exit strategy from its current easy monetary policy.
Judgments regarding when to change the direction of policy are difficult, and much of our thought and energy are devoted to getting it right. But by employing a forward-looking Taylor-rule framework, when to exit is not a particularly bewildering problem conceptually.
Weaning Irish banks off emergency funding from the ECB will take longer than hoped, after Irish authorities suspended plans to force the country’s troubled banks to sell off huge portfolios of loans.
The country’s banks need to offload as much €100bn ($139bn) of legacy assets as they undergo a drastic clean-up of their balance sheets following the huge losses they suffered during the financial crisis. The ECB wanted the deleveraging to be undertaken quickly so the banks could whittle down their reliance on emergency funding, which has risen to about €140bn. Read more
The ECB and Greek collateral
Moody’s, the credit rating agency, has created a political storm in Athens by downgrading Greece’s government bonds by a further three notches. At B1 (down from Ba1), Greek bonds now “lack the characteristics of a desirable investment,” in Moody’s terminology.
But they are still acceptable for use as collateral in European Central Bank liquidity operations. Last May, the ECB suspended the minimum credit rating requirement for Greek debt – on the grounds that it had confidence in the country’s economic rescue plans, whatever the credit rating agencies thought. In other words, Greek banks could continue to obtain unlimited liquidity from the ECB, using their government bonds as collateral.
What is more, Moody’s announcement does not change anything in terms of the “haircut” – or discount – applied by the ECB to Greek bonds when calculating how much liquidity banks can obtain. Read more
Libya & the trouble with TIC
Data from the Treasury International Capital system have always got a lot of stick. The system is meant to show foreign holdings of US assets broken down by country (and vice versa) but has a big problem with ‘custodial bias’: it struggles to track funds beyond the financial centre where they are held, e.g. the UK, Switzerland, the Channel Islands, various dodgy Caribbean destinations etc.
Recent sanctions on Libya have created a fascinating natural experiment on just how big that ‘custodial bias’ actually is. Does the amount of Libyan assets in the US reported to TIC match up with the amount of Libyan assets frozen in the US? Answer: a resounding ‘No’. Read more
A managing director of Goldman Sachs will replace chief hawk Andrew Sentance as an external member of the MPC, starting a renewable three-year term at the Bank of England on June 1. Sterling is rising as the markets take the news as bullish. Note: Mr Sentance will still be voting in May’s key MPC meeting. (Read more about Mr Broadbent’s views from Chris.)
Out of 27 applications for the position, only one was from a woman.
Cambridge and Harvard-educated Ben Broadbent has been senior European economist at Goldman Sachs since 2000. “I am thrilled. It is a great honour and a great responsibility,” he told the Financial Times on Monday. “His broad professional experience in the financial sector and academia, as well as his detailed knowledge of the UK economy, will be extremely valuable to the Committee,” finance minister George Osborne said in a statement. He also thanked Mr Sentance for his “original analysis”.
Mr Broadbent worked as an assistant professor at Columbia University, and as an economist at the Treasury and the Bank of England before joining Goldman. Recent comments from Goldman’s UK Economics Analyst note, edited by Mr Broadbent strike a hawkish note: Read more
Two out of four ain’t bad. Ferenc Gerhardt and Andrea Bartfai-Mager are two government nominees for the central bank’s new policy board, under a new law that allows the government to appoint four rather than two of the seven-strong council. The law was sharply criticised by the ECB for potentially impacting on central bank independence.
Markets have welcomed the appointments, deemed “reasonable” by Elisabeth Andreew, chief currency strategist at Nordea. Analysts had worried the new government appointees would want to promote growth at the expense of fighting inflation; all three major agencies have cut Hungary’s government debt rating since November. The appointment of two former central bankers has reassured markets, as has their strong anti-inflation line at interviews today. Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
